SN 95(7)

Legislative Changes Affecting the Gift Tax

PURPOSE: The purpose of this Special Notice is to describe amendments made to the Connecticut gift tax during the 1995 session of the Connecticut General Assembly.

STATUTORY AUTHORITY: 1995 Conn. Pub. Acts 27, and 1995 Conn. Pub. Acts 26, §35.

EFFECTIVE DATES: Sections 1 and 2 of 1995 Conn. Pub. Acts 27 are effective May 8, 1995 and are applicable to gifts made on or after January 1, 1995. Section 3 of 1995 Conn. Pub. Acts 27 is effective May 8, 1995 and is applicable to gifts made on or after July 1, 1995. Section 35 of 1995 Conn. Pub. Acts 26 is effective July 1, 1995, and is applicable to gift tax due and owing after that date, whether or not the tax first became due before that date.

GIFTS OF FARM LAND: Section 3 of 1995 Conn. Pub. Acts 27 clarifies the special valuation provisions of Conn. Gen. Stat. §12-646a for gifts of farm land (as defined in Conn. Gen. Stat. §12-107c) to a donee who is a lineal descendant or a spouse of a lineal descendant. (These special valuation provisions are not available where farm land is transferred by or to a corporation, partnership or trust because such entities cannot be or have lineal descendants.)

Specifically, 1995 Conn. Pub. Acts 27, 3(b) provides that if, within ten years following the transfer of farm land, as defined in Conn. Gen. Stat. §12-107c, by a donor to a lineal descendant or to a lineal descendant's spouse, either:

• the donee transfers the farm land to a party other than his or her lineal descendant or a lineal descendant's spouse,
  or
• the transferred land is no longer classified as farm land in accordance with Conn. Gen. Stat. §12-107c,

then the first donee is liable for the difference between the tax that was due from the donor (as determined by Conn. Gen. Stat. §12-646a(a)) and the tax that would have been due if the transferred land had been valued at its fair market value at the time of the first donor's transfer. Transfers of farm land include sales of development rights.

Conn. Gen. Stat. §12-646a(b) now provides that the tax imposed by that subsection must be paid within sixty days following the transfer or classification change, and that the Commissioner may, for cause shown, extend the time for payment of such tax.

Section 3 of 1995 Conn. Pub. Acts 27 also creates a statutory lien to help ensure that gift tax is collectible if a donee transfers farm land or changes its classification within ten years after the gift was made.

Conn. Gen. Stat. §12-646a(c) provides that a lien shall run in favor of the State from the date of a transfer described in Conn. Gen. Stat. §12-646a(a), until, if there has been no subsequent transfer or classification change resulting in the imposition of tax under Conn. Gen. Stat. §12-646a(b), the expiration of ten years following such transfer. If there has been a subsequent transfer or classification change resulting in the imposition of tax under Conn. Gen. Stat. §12-646a(b), then the lien runs in favor of the State until the tax and any interest is paid. However, the lien will not be valid against any bona fide purchaser (as defined in Conn. Gen. Stat. §12-35b(a)) or qualified encumbrancer (as defined in Conn. Gen. Stat. §12-35b(b)).

DUE DATE FOR RETURNS: Section 1 of 1995 Conn. Pub. Acts 27 amends Conn. Gen. Stat. §12-39a(b) to provide that the due date of the Connecticut gift tax return will be the same as the due date of the Connecticut income tax returns. Under Conn. Gen. Stat. §12-39a(b), "legal holiday" includes, for Connecticut gift or income tax purposes, any legal holiday, as defined in 26 U.S.C. §7503. Where a return is required under authority of the internal revenue laws to be filed at any office located outside the District of Columbia, the return is considered to be timely filed if it is filed on the day next succeeding a Saturday, Sunday or a Statewide legal holiday in the State where such office is located. 26 U.S.C. §7503. Because Connecticut residents file their federal gift tax returns at the Internal Revenue Service Center in Massachusetts, and Patriots Day is a statewide legal holiday in Massachusetts, if the date that would otherwise be the due date for the Connecticut gift tax return falls on Patriots Day, the return will be considered timely filed if it is filed on the next succeeding day which is not a Saturday, Sunday or legal holiday.

Section 2 of 1995 Conn. Pub. Acts 27 amends Conn. Gen. Stat. §12-645 to provide an exception to the rule that gift tax returns should be filed on or before April 15 following the close of the calendar year. (This exception parallels a similar provision in Conn. Gen. Stat. §12-647(a) regarding when gift taxes should be paid.) The amended statute provides that, for gifts made during the calendar year in which the donor dies, the donor's gift tax return must be filed on or before the last date, including extensions, for filing the donor's federal gift tax return.

CHANGES TO INTEREST PAYABLE: Section 35 of 1995 Conn. Pub. Acts 26 reduces the rate of interest payable on late payments and audit assessments from 1 1/4 % to 1% per month or fraction thereof. The act also reduces the rate of interest payable by the Department, if the tax has been paid prior to taking an appeal to the superior court, and, if the court orders the tax to be refunded and orders interest to be paid thereon, from 9% per year to 2/3 % per month or fraction thereof.

EFFECT OF THIS DOCUMENT: A Special Notice is a document that announces a new policy or practice in response to changes in State or federal laws or regulations or to judicial decisions. A Special Notice indicates the Department's informal interpretation of Connecticut tax law and may be referred to for general guidance by taxpayers or tax practitioners.

EFFECT ON OTHER DOCUMENTS: None affected. 

SN 95(7)
Gift tax
Issued: 6/28/95